IN a separate response on the pensions market in Ireland, the industry in a joint statement warned that some of the proposed pension policy changes, if introduced, would “impoverish” the middle classes.
The pension fund providers in Ireland, including Aviva, have condemned the proposed reduction in income tax relief for hard pressed pension savers.
Commenting on the Government’s National Pensions Framework (NPF) document, they condemned the Government’s proposal to reduce income tax relief for (predominantly middle class) pension savers to 33% from the current 49%. Such action “will impoverish middle class people.”
They said the extension of greater investment options via approved retirement funds (ARFs) needs to be made widely available and not confined to the wealthy.
Diarmuid Kelly, chief executive of PIBA, the Professional Insurance Brokers Association, said: “We believe this has the potential to kill off interest in savings and impoverish generations of private sector middle class people in retirement.
“If implemented, it will be a socially divisive policy further widening the inequitable gap between the quantity and quality of private and public sector pension coverage.”
The average private sector worker has a pension fund of approximately €90,000 while the average pension fund at retirement in Ireland is €120,000-€150,000.
By comparison, a public sector worker, with a pension of €30,000 linked to salary would require a fund of “30-40 times that pension to buy the equivalent on the open market”.
Even allowing that private sector workers may have more than one pension fund, the evidence suggests “public sector workers are better off in pension terms by a factor of 3-5 times”.
“The concern is that interfering with tax relief structures will make this disparity even worse”, he said.
Chief executive of Standard Life Nigel Dunne said “reducing income tax relief will reinforce a perception already held by many consumers that there is no point in pension savings if tax relief is granted at 33% on contributions and paid at 49% on retirement income”. To prevent the pensions momentum from stalling it was vital that greater investment options through approved retirement funds be allowed to retain existing savers and to attract new younger people.
A spokeswoman for the Pensions Board confirmed that just 54% of Irish workers have pensions at this stage, despite serious efforts to push the PRSA option.
The Irish Institute of Pension Managers, the IrishAssociation of Pension Funds and the Irish Association of Investment Managers all support the tax relief and ARF proposals in the document.
© Irish Examiner Ltd. All rights reserved